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11 August, 23:34

Grady Home Health has a profit margin of 15 percent on sales of $20,000,000. If the firm has debt of $7,500,000 and total assets of $22,500,000, what is Grady's return on assets (ROA)

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  1. 11 August, 23:46
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    The ROA is 20%

    Explanation:

    The Return on Asset is the ratio of a company's net income compared to its asset. It is used to show how profitable the assets a company has is to the company.

    mathematically it is represented as;

    ROA = (net income) : (total asset)

    let us calculate net income first.

    net income = 15% on sales of $20,000,000

    = 15/100 * 20,000,000

    = 0.15 * 20,000,000 = $3,000,000

    Asset = Total asset - debt = 22,500,000 - 7,500,000 = $15,000,000

    ∴ ROA = 3,000,000 : 15,000,000 = 0.2

    converting to percentage; 0.2 = 20/100 = 20%
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